Part 12: Health Insurance & Medical Deductions — Big Tax Savings for Home-Business Owners

Health Insurance & Medical Deductions — Big Tax Savings for Home-Business Owners (2025)

Health insurance is one of the largest expenses for self-employed individuals — but it also provides some of the most valuable tax deductions.
In 2025, home-business owners may deduct self-employed health insurance premiums, certain medical expenses, and health-related benefits for employees.



1️⃣ The Self-Employed Health Insurance Deduction

Chapter 12 explains that home-business owners may deduct 100% of health insurance premiums
“above the line,” meaning the deduction reduces AGI and is available even without itemizing.
This includes premiums for you, your spouse, and your dependents.

Important: You must show net profit from your business to take this deduction.

2️⃣ Who Qualifies for the Deduction?

You qualify if all the following apply:

  • ✔️ You have net self-employment income
  • ✔️ You are not eligible for employer-sponsored health insurance (including spouse plans)
  • ✔️ The policy is in your name or your business name

NOT eligible: If you or your spouse have access to employer insurance, even if you decline it.

3️⃣ Premiums You Can Deduct in 2025

The self-employed health insurance deduction includes the following premiums:

  • ✔️ Medical insurance
  • ✔️ Dental insurance
  • ✔️ Vision insurance
  • ✔️ Long-term care insurance (age-based limits apply)
  • ✔️ Medicare Parts A, B, C, D
  • ✔️ Medicare Supplement (Medigap) plans

💡 Example — SEHI Deduction
Net self-employment income: $26,000
Annual premiums: $6,800
✔️ Full $6,800 deducted “above the line.”
✔️ This reduces AGI and may increase other credits.

4️⃣ Medical Expense Deductions (Schedule A)

Only expenses above 7.5% of AGI are deductible when itemizing.
Chapter 12 lists common qualifying medical expenses.

  • ✔️ Doctor & hospital bills
  • ✔️ Prescription medications
  • ✔️ Necessary medical equipment
  • ✔️ Lab tests, X-rays, and imaging
  • ✔️ Medically required travel (mileage rate applies)

Not deductible: cosmetic surgery, gym memberships (unless medically required), vitamins, or wellness products.

5️⃣ Health Insurance Rules for Employees

If your home business has employees, health insurance rules differ.
Per Chapter 12, employer-provided coverage may be deductible as a business expense
and may be tax-free to employees.

  • ✔️ Employer-paid premiums are deductible
  • ✔️ Health benefits may be excluded from employee wages
  • ✔️ Small employers may offer QSEHRA (reimbursement arrangement)

Tip: Employee health benefits reduce taxable wages and improve employee retention.

6️⃣ Real Examples

💡 Example 1 — Eligible for SEHI Deduction
You run a freelance design business with no employer insurance options.
✔️ You can deduct medical + dental + vision premiums for yourself and your dependents.

💡 Example 2 — Not Eligible
Your spouse has access to employer health insurance.
❌ You cannot take the SEHI deduction, even if you decline the plan.

💡 Example 3 — Employee Coverage
You hire a part-time assistant and pay $3,000 of their annual premiums.
✔️ Deductible as a business expense
✔️ Excluded from employee taxable wages

7️⃣ IRS Documentation Requirements

Required Records:
• Insurance policy documents
• Premium payment receipts
• Proof of business income
• Evidence of ineligibility for employer coverage
• Employee benefit plan documentation (if applicable)

The IRS frequently checks eligibility for the SEHI deduction —
maintaining clear proof of ineligibility for employer-sponsored plans is essential.

📦 Small Business Essentials — Recommended Tools

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